Govt needs to show us its economic stimulus package or the cow gets it

Thursday April 23 2020

In Summary

Economic stimulus. This is the time for the government to feed the cow it loves to milk. It need not be out of benevolence but of necessity; dead cows, like unemployed, unproductive taxpayers, are of little or no use – but they can, and will, deliver a powerful political kick.

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By DANIEL K. KALINAKI

Although Kenyan President Daniel arap Moi left power in 2002, the beginning of the end for him and his regime went back a decade to 1992. It wasn’t so much the violence and ballot-stuffing that characterised the polls, but the loss of confidence and disinvestment in the economy in the decade that followed.

The underlying reasons are too many to get into here but principally, many Kenyans who considered themselves middle-class suffered humiliating drop in income and standards of living. They began rallying around Mwai Kibaki in the 1997 general election and eventually brought him to power in 2002 in what could be considered a middle-class-led mini revolution.

Poor Kenyans had always lacked and, therefore, went with the flow, driven by electoral bribes or violence. But people who have had and then lost something, like the middle-class Kenyans that fell backwards in that decade, are the ones that really bring about serious changes in the status quo.

Uganda is the latter years of its own decade of stagnant or backward growth for many. Two out of every three people that climbed out of poverty in the first half of the last decade fell back during the second half. The Covid-19 pandemic is about to reach upwards and drag down a couple more millions.

It is just over a month since we began battening down the hatches in preparation for the arrival of the pandemic. It is still early days to tell whether we will survive the brunt of the medical impact, especially in light of potentially run-away infections in neighbouring countries, but the economic impact is already being felt.

Trade and Industry minister Amelia Kyambadde says only 215 factories are still in operation while over four thousands firms have closed shop, mostly the small and medium enterprises that create most of the jobs.

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Tourism is under water and the two other drivers of growth in recent years, services and construction, are neck-deep. Even if the lockdown were to be lifted in the coming few weeks, it will take several more months to stop the slide and rebuild momentum.

Individuals and firms desperately need help to stay afloat. Government’s immediate intervention, in the form of giving people fish, has been predictably beset by corruption and incompetence. It urgently needs to give the economy tools to let people return to their own fishing.

There has so far been very little signalling of reforms, especially on fiscal policy. Urging landlords not to evict tenants who miss their rent payments is a nice moral virtue, but it does not pay the mortgage.

Neither is it realistic to appeal to employers to look deeply into their Christian hearts and not lay off people; payrolls need cash, not prayers.

Quite simply, the government needs to urgently lay out a stimulus package to keep the economy on life support and get it back to its feet once the pandemic passes. This is the time for policy prescriptions, not thoughts and prayers.

Many countries have developed their own stimulus packages but we can learn one or two things from Kenya. The government there has waived income taxes on people earning a gross monthly income of $240 or less, then reduced the top income tax rate for firms and individuals from 30 to 28 per cent.

The Kenyan government has also reduced the VAT rate, already at a competitive rate of 16 per cent, down to 14 per cent. These measures will reduce outflows from the pockets of firms and individuals.

Another set of reforms will put money into pockets. These include a directive for government agencies to settle about $122 million in debt owned to the private sector, as well as expedite VAT refunds from the revenue body to taxpayers in the order of just under a billion dollars.

These moves were announced a week or so into the pandemic and many took immediate effect or came into effect shortly after. Kenyan firms and Kenyans generally have therefore received a hand up from their government to keep them afloat in these troubling times.

Uganda government, weyayu? Tax rates, of course, come with austerity measures in government and its agencies. A freeze on travel, workshops and similar non-priority capital and recurrent expenditures would be necessary without much pain.

This is the time for the government to feed the cow it loves to milk. It need not be out of benevolence but of necessity; dead cows, like unemployed, unproductive taxpayers, are of little or no use – but they can, and will, delivera powerful political kick.

Mr Kalinaki is a journalist and a poor man’s fight. Email: write2kalinaki@gmail.comTwitter: @Kalinaki